Goldman Sachs Research released a report last Friday titled "Iran Conflict: Duration and Severity?" The analysis, based on interviews with geopolitical experts, former U.S. military leaders, and internal Goldman Sachs analysts, provides a detailed assessment of the historic disruption to energy supplies resulting from joint U.S.-Israeli strikes against Iran. The report examines the conflict's potential duration, economic impact, and effects on financial markets. The report emphasizes that the conflict has brought shipping traffic through the Strait of Hormuz to a near standstill and damaged regional energy infrastructure, with no immediate signs of de-escalation. Iran views this as a fight for its survival, while the United States would need to secure control of the strait to claim victory.

Analysis of Conflict Duration Citing multiple expert opinions, Goldman Sachs suggests the conflict is unlikely to end quickly. Sanam Vakil, Director of the Middle East and North Africa programme at Chatham House, stated that all current evidence points to a prolonged conflict, as Iran has not signaled a desire to end hostilities and the U.S. has yet to achieve a declarable victory. Iran is reportedly seeking guarantees for sanctions relief through a protracted engagement. Dennis Ross, a senior fellow at The Washington Institute for Near East Policy and former U.S. Middle East coordinator, indicated the war could continue for several more weeks. He noted that U.S. control over the Strait of Hormuz could degrade Iran's conventional threat capabilities for at least five years, but full victory for the U.S. is unattainable as long as Iran maintains control over its oil exports. While mediation remains possible, the conditions are not yet ripe. Retired U.S. Navy Vice Admiral Kevin Donegan, former commander of the U.S. Fifth Fleet, assessed that U.S. forces have largely achieved objectives in degrading Iranian missile, drone, and naval capabilities, but regime change is unlikely without ground forces. Naval convoys could partially restore safe passage but would, at best, recover only 20% of normal oil flows. A full restoration requires incentives and trust-building with Iran. The Trump administration has repeatedly suggested the conflict could last 4-6 weeks, though political pressures may ultimately limit its duration.

Assessment of Energy Supply Shock The report describes the situation as the largest energy supply disruption in history. Oil flow through the Strait of Hormuz has plummeted by 97%, from a normal level of 20 million barrels per day to just 0.6 million barrels per day. This represents a one-time shock to global supply of 17.6 million barrels per day, equivalent to 17% of global demand. Brent crude prices have surpassed $100 per barrel, marking an increase of approximately 50% since before the conflict. Regarding natural gas, the European TTF benchmark price has risen to 61 euros per megawatt-hour, a 90% increase. Prolonged conflict could push prices to 100 euros/MWh. Analysis from Goldman Sachs' commodity research team indicates that refined product prices, such as diesel and jet fuel, have risen more sharply than crude oil prices, signaling more severe downstream impacts.

Global Economic and Market Impact Goldman Sachs' global economics research team estimates that every 10% increase in oil prices reduces global GDP by over 0.1% and increases global Consumer Price Index by 0.2 percentage points, with larger effects in Asia and Europe. The current three-week disruption has already reduced global GDP by 0.3% and increased inflation by 0.5-0.6 percentage points. If the disruption lasts for 60 days, the GDP impact could reach 0.9%, with inflation rising by 1.7 percentage points. Kamakshya Trivedi, Head of Global Markets Research, suggests that while asset prices have currently priced in the inflation shock, they have not yet fully priced in the growth shock. If the disruption is prolonged, growth risks represent the "next shoe to drop." U.S. Treasury yields have risen at the front end of the curve, with the 2-year yield up 20-30 basis points, and the U.S. dollar has strengthened, putting pressure on the euro and Asian currencies. Consequently, Goldman Sachs has lowered its global GDP growth forecast for 2026, raised its inflation expectations, and delayed its projected start date for Federal Reserve rate cuts to September or December.

Regional Economic Impact Farouk Soussa, Head of Middle East and North Africa Economics, warned that Gulf Cooperation Council countries are suffering severe impacts. Non-oil GDP could contract by 2% to 12%, with Kuwait facing the highest potential decline of 12%. Oil revenue losses are estimated at approximately $700 million per day. Overall economic contraction in the region could exceed any period in the past 30 years, including the impact of the COVID-19 pandemic, potentially leaving long-term scars that affect economic diversification efforts and investor confidence.

Future Scenario Outlook Baseline Scenario: A gradual recovery is assumed, with Strait of Hormuz flows restored within one month. Brent crude is projected to fall to $71 per barrel by the fourth quarter of 2026, which is $9 higher than a no-conflict scenario. Global GDP would be reduced by 0.3-0.5%, with inflation 0.5-0.9 percentage points higher. Upside Risk: A prolonged 60-day disruption could see Brent crude average $93 per barrel. In an extreme scenario involving persistent production losses of 2 million barrels per day, prices could reach $110 per barrel by the fourth quarter of 2027, significantly amplifying global growth and inflation risks. Downside Risk: A faster-than-expected recovery or the deployment of OPEC spare capacity could partially mitigate the impact. However, overall risks are skewed toward higher oil prices and lower growth.

The Goldman Sachs report underscores that the conflict with Iran has triggered the largest energy supply disruption on record, is difficult to resolve quickly, and its economic impact is expanding from an inflation shock to a potential drag on growth. The reality of Brent crude above $100 per barrel contrasts sharply with the $71 per barrel baseline projection, highlighting how the conflict's duration is a critical uncertainty for the global economy and markets. The Gulf region faces the most severe consequences, while developed economies must contend with dual pressures from inflation and slowing growth. Overall, the persistence of the conflict will be a core variable determining the global macroeconomic outlook, requiring investors to monitor developments in the Strait of Hormuz and diplomatic negotiations closely.